The draft National Pharmaceutical Pricing Policy (NPPP) 2011, like the proverbial double -edged scimitar, has a positive and negative impact on the drug industry, healthcare providers as well as patients.

Despite the fact Indian pharma industry has been offering lowest prices, the government’s  attempt to control 60 per cent of the market will put a dampener on the growth prospects, according to industry veterans.

“The NPPP 2011 is virtually putting the industry between the devil and deep sea. On the one hand, we have to safeguard public health by providing quality drugs  on par with regulated markets of EU and USA and on the  other, the prices are expected to be almost at charitable rates, said N. R. Munjal, chairman, Pharmexcil and vice chairman &  managing director, IndSwift Laboratories.  

The draft policy is obviously a three-way shift from the earlier cost-based to market control pricing; dual to single and criteria to specialty. As far as the prices are concerned, drugs that were not under price control in the  last couple of years, have not  increased much because of the competition. But NPPP 2011 which   not only  exercises control over the National List of Essential Medicines (NLEM), but also on all dosage forms and combinations that are not part of the list covering the non-standard dosages, will further eat into vitals of the industry. The most worrying aspect is that from the current price control of 20 per cent, now with the inclusion of   NLEM, the draft policy is going to control 60 per cent, which will definitely stymie the prospects of   the industry and drug availability, he added.

According to Archana Mitra, vice president, international marketing, Bal Pharma, the policy  might sound good but will not help much in terms of increase in production, as we lose  out in terms of cost competitiveness when compared to China. Due to high volume capacities, China will continue to have  an upper hand in production.

Rakesh Bamzai, president, marketing, Biocon Ltd said “After being at disadvantage for a long time, this policy will partly bring Indian pharmaceutical companies on par with others. Government should actively make provisions to give advantages in pricing and priority to the domestic pharmaceutical companies to accelerate the growth of the indigenous industry.”

The policy has done away with the price fixation of active pharmaceutical ingredients (APIs).  Over the years, the high cost of production had forced companies to opt for imports from China. Almost 70 per cent  of APIs were sourced from China and now if the new policy is implemented, the Union Government would have to take some positive initiatives in its fiscal policy to enhance capacity for API production, said Munjal.

“Bal Pharma operates in a niche segment and has not   discontinued any of the APIs till date. It is not just the price control but the cost benefits which prod Indian companies to import from China. For improving the prospects of the industry, along with the relaxation of APIs, the Indian pharma industry has to go full blast to improve cost efficiencies so as to compete head-on with China and save the valuable foreign exchange of  the country, said Mitra.

The  price reduction of top three brands  as envisaged in the draft policy will neither help the consumers nor appeal to manufacturers.  In such cases the multinational companies (MNCs) or the brand leaders would suffer most, if their brands are on the top of the list. For instance, if GlaxoSmithKline or Alkem  has a brand in the top three, then the company would have a Rs. 30 crore  to Rs. 40 crore  hit on the bottom line, which would singe the R&D investments of the company, said Munjal.

“Fundamentally, price control is counter-productive to innovation and research which undrgirds the growth of any industry. So, instead of bringing more products into the  ambit of price control, the government should develop mechanisms to adopt treating  chronic diseases like cancer, diabetes and Alzheimer’s as seen in other developing

countries. In a vast economy like India, the cost of this adoption would be peanuts for the government,” pointed out Bamzai.

Recently it was  reported that a non-government organization (NGO) forced the government to bring all essential medicines under price control. The Supreme Court rejected the pricing formula in the proposed policy on the grounds that it legitimized overpricing and justified super profits.

In its rejoinder filed in the apex court, the All India Drug Action Network (AIDAN) strongly opposed the Government’s  formula for pricing all 348 essential drugs on the average of three top-selling brands in each segment. AIDAN responded to the Department of Pharmaceuticals (DoP) submission to the apex court that the Government was committed to bringing all 348 drugs included in the NLEM, 2011 under price control.

The proposed clause on Rs. 3 ceiling price is outdated and needs to be amended in accordance with the increasing inflation as this price was recommended by Pronab Sen committee in 2005. But in 2011, taking into consideration the cost escalation of last six years, the same should be at least of Rs. 5. The draft policy may also result in the reduction of retailers’ trade margin from 20 per cent to 16 per cent or it would have a cascading effect to the tune of four per cent in the manufacturers’ margins because of the pressure by chemist associations. It will also hit the growth of the small & medium enterprises (SMEs) as it does not favour competition,   said Munjal.

Here it should be noted that while there is a 10 per cent  to 15 per cent  increase in price annually  in the controlled category,  there will also be a pressure on the manufacturers to freeze prices  for two years. In order to streamline price volatility, there should be a one-time unconditional increase of 20 per cent. The draft policy allows an increase in price by 15 per cent every year in the controlled category, which should be 20 per cent, pointed out Munjal.

According to Raj Vaidya, a Community Pharmacist at Hindu Pharmacy, Panaji and Vice President & Chairman, Community Pharmacy Division, Indian Pharmaceutical Association, there  is a need for drugs and fixed dose combinations (FDCs) not in the NLEM to be under price control or at least in the ‘reasonable’ price control category.